UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
Investment Company Act of 1940
Release No. 22535 / February 28, 1997
Admin. Proc. File No. 3-8934
-----------------------------------------
:
:
In the Matter of : ORDER ACCEPTING
: OFFER OF SETTLEMENT,
: MAKING FINDINGS, AND
ANTHONY J. NEGUS, : IMPOSING SANCTIONS
: AND CEASE-AND-DESIST
: ORDER
Respondent. :
_________________________________________:
I.
On January 22, 1996, The Commission instituted public
proceedings pursuant to Sections 9(b) and (f) of the Investment
Company Act of 1940 ("I.C.A."), Section 8A of the Securities Act
of 1933 ("Securities Act"), and Sections 15(b) and 21C of the
Securities Exchange Act of 1934, to determine whether Respondent
Anthony J. Negus ("Respondent") violated Section 34(b) of the
Investment Company Act and Section 17(a) of the Securities Act,
or aided and abetted violations of Sections 13(a)(3) and 34(b) of
the I.C.A. and Rule 22c-1 thereunder.
Pursuant to Rule 240 of the Rules of Practice of the
Commission, Respondent has submitted an Offer of Settlement
("Offer") in connection with the Order for Proceedings in the
above-captioned matter, whereby Respondent admits the
jurisdiction of the Commission with respect to the Respondent and
the matters set forth in the Order for Proceedings and consents
to the entry of this Order Accepting Offer of Settlement, Making
Findings and Imposing Sanctions.
Solely for the purposes of this proceeding and any other
proceeding brought by or on behalf of the Commission or in which
the Commission is a party, prior to a hearing pursuant to the
Commission's Rules of Practice, 17 C.F.R. 201.1 et seq., and,
unless specifically admitted, without admitting or denying the
matters set forth in the Order for Proceedings and this Order
Accepting Offer of Settlement, Making Findings and Imposing
Sanctions; and Cease-and-Desist Order (the "Order"), Respondent
consents to the issuance of this Order.
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II.
FINDINGS AND CONCLUSIONS
The Commission finds that:
A. Background
1. Concourse Funds, Inc. ("Concourse Fund" or the "Fund"),
was registered as a non-diversified, open-end management
investment company pursuant to a registration statement filed
with the Commission on or about August 23, 1991. The Fund was
registered under the Investment Company Act, but its securities
were not registered under the Securities Act of 1933.
2. Concourse Capital Holding Company, Inc. (the "Holding
Company"), at all relevant times, was jointly owned by Respondent
and another individual. The subsidiaries of the Holding Company
included Concourse Capital Corporation, a registered broker-
dealer, and Concourse Capital Asset Management, Inc., the
investment adviser to the Fund.
3. Concourse Capital Corporation ("CCC") was registered
with the Commission as a broker-dealer in 1986. On November 23,
1992, CCC filed an amended Form BD changing its name to
Northridge Capital Corporation. CCC was the exclusive
distributor of the Fund's shares.
4. Concourse Capital Asset Management, Inc. ("Concourse
Adviser" or the "Adviser"), the investment adviser to the Fund,
filed a Form ADV to register with the Commission on or about June
28, 1991.
5. On November 15, 1994, the Commission issued an Order
which, among other things, revoked the Adviser's registration as
an investment adviser. -[1]-
6. Respondent was the executive vice-president, secretary,
and a director of the Fund, a principal of Concourse Adviser, and
President of the affiliated broker-dealer, CCC.
7. The Fund's registration statement described the Fund's
fundamental investment policies which could not be changed
without the approval of a majority of its shareholders. Those
policies provided that: (1) the Fund would not invest more than
10% of its assets in restricted securities or other illiquid
assets, and any such restricted securities or illiquid assets
---------FOOTNOTES----------
-[1]- Order Instituting Public Administrative
Proceedings, Making Findings and Imposing Sanctions in the Matter
of Concourse Capital Asset Management, Inc. et al., Admin. Pro.
File No. 3-8551.
==========================================START OF PAGE 3======
would be priced at fair value as determined in good faith by the
board of directors; (2) as to 50% of its assets, the Fund would
not purchase securities of any one issuer if, immediately after
such purchase, more than 5% of the Fund's assets would be
invested in the securities of that issuer; and (3) as to the
other 50% of its assets, the Fund would not invest more than 25%
of its total assets in the securities of any one issuer.
8. The registration statement imposed other restrictions
on the Fund's investments. According to the registration
statement, the Fund could invest up to 50% of its assets in the
insurance industry, but could not generally concentrate its
investments in any one industry. The Fund could not invest more
than 80% of its assets in debt securities, and it was required to
limit the purchase of lower-rated debt securities to those having
an established retail secondary market.
9. The Fund was prohibited from entering into exchange
transactions unless the securities to be exchanged for Fund
shares were readily marketable, complied with the investment
policies of the Fund, and had values that were readily
ascertainable.
10. No shareholder approval to change any of the Fund's
investment policies was ever sought or obtained.
B. Fund Investments
11. While it was in existence, the Fund made at least three
investments that deviated from the Fund's fundamental investment
policies and the other restrictions specified in its registration
statement. These investments were in the form of "exchange
transactions" in which the Fund issued its shares in return for
promissory notes. The Fund valued those notes at their full face
value despite their illiquid nature and the uncertain financial
condition of the issuers.
12. Except for two nominal cash infusions, the foregoing
exchange transactions constituted all of the transactions
executed by the Fund during its approximately three and one half
months of operation.
13. From the time of its first exchange transaction in
September, 1991, the Fund contravened its fundamental policy that
as to 50% of its assets, it would not invest more than 25% of its
assets in the securities of one issuer.
14. In addition, those notes were restricted and illiquid
securities with market values that could not be readily
ascertained. Each of the three notes constituted more than 10%
of the Fund's assets at the time that it was received into the
Fund. By acquiring each note, therefore, the Fund violated its
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fundamental policy of not investing more than 10% of its assets
in restricted securities or other illiquid assets.
15. As one of the Fund's two officers and as a director of
the Fund, Respondent was familiar with the Fund's registration
statement and the investment policies contained therein.
Moreover, as an officer of both the Fund and the Adviser,
Respondent had an obligation to see to it that the Fund engaged
only in transactions that complied with its stated investment
policies and restrictions.
C. Improper Valuation Of Fund Shares
16. The Fund valued the corporate notes in its portfolio at
their full face value for exchange purposes. Under the
circumstances described above, such valuations caused the Fund to
materially overstate the true value of its assets.
17. The Fund sold and redeemed its shares based on
incorrect net asset values. After the first promissory note was
exchanged for Fund shares, the net asset value of the Fund was
never calculated properly.
18. The Fund's board of directors played no part in valuing
any of the securities received into the Fund despite the
requirements of the Investment Company Act and the Fund's
registration statement that the board make good faith
determinations of the current value of all restricted securities.
The board was not advised of the Fund's investments in such
securities.
D. Fund Filings
19. Respondent caused the Fund to file several documents
with the Commission that contained untrue statements of material
fact and omitted to state material facts relating to, among other
things, the composition of the Fund's board of directors, the
nature and value of the assets in the Fund, the method of valuing
those assets, and the net asset value of the Fund's shares.
20. Material misstatements were made in at least four
separate filings with the Commission, including:
a. A Form N-1A registration statement filed
on August 23, 1991;
b. A Form D notice of sale of securities
pursuant to Regulation D under the Securities
Act, filed on September 17, 1991;
c. A Form N-SAR semi-annual report, filed
on December 2, 1991; and
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d. A semi-annual report to shareholders,
filed on December 10, 1991.
21. It is appropriate to issue a cease and desist order
against Respondent in light of the these findings and the
violations of law described below.
E. Violations Of Law
22. In engaging in the conduct described above, Respondent:
a. willfully-[2]- violated Section 34(b)
of the Investment Company Act; and
b. aided and abetted violations of Section
13(a)(3) of the Investment Company Act and
Rule 22c-1(a) thereunder.
III.
RESPONDENT'S OFFER OF SETTLEMENT
Respondent has submitted an Offer of Settlement in which he
consents to the Commission's issuance of this Order making
findings as set forth above; suspending Respondent from
association with any broker, dealer, investment adviser,
investment company or municipal securities dealer for a period of
ninety (90) days; and Ordering Respondent to cease and desist
from committing or causing any violation or any future violation
of Sections 34(b) and 13(a)(3) of the Investment Company Act and
Rule 22c-1(a) thereunder.
IV.
ORDER
Based on the foregoing, the Commission deems it appropriate
and in the public interest to accept the Offer of Settlement of
Anthony J. Negus.
Accordingly, IT IS ORDERED that Respondent:
(1) be, and he hereby is, suspended from
association with any broker, dealer,
investment adviser, investment company or
municipal securities dealer for a period of
---------FOOTNOTES----------
-[2]- "Willfully" as used in this Order
means intentionally committing the
act which constitutes the
violation. See Tager v. SEC, 344
F.2d 5 (2d Cir. 1965).
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ninety (90) days effective thirty (30) days
from the issuance of this Order; and
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(2) shall, effective immediately, cease and
desist from committing or causing any
violation or any future violation of Sections
34(b) and 13(a)(3) of the Investment Company
Act and Rule 22c-1(a) thereunder.
By the Commission.
Jonathan G. Katz
Secretary